Leaving Canada can trigger tax on a private company that you have not sold and may have no intention of selling. When an individual ceases to be resident in Canada, the Income Tax Act generally deems certain property to have been disposed of at fair market value immediately before departure and reacquired at the same amount. The resulting capital gain is commonly called departure tax.
For an owner of private-company shares, the hard part is often not the tax return. It is establishing a supportable fair market value on a specific date when there is no quoted market, no arm’s-length offer and no cash transaction to fund the tax. The valuation has to be done before memories fade, records move jurisdictions and later events contaminate what was knowable at the departure date.
What the deemed disposition does
The deemed disposition treats covered property as if it were sold for fair market value and immediately repurchased for the same amount. For private-company shares, the difference between that fair market value and the shareholder’s adjusted cost base can create a capital gain even though ownership has not changed.
The rule applies when the person ceases to be resident for Canadian tax purposes. Moving, obtaining a visa or spending time abroad does not by itself settle tax residency. Residential ties and an applicable tax treaty can change the answer. Residency is a legal and tax determination for the individual’s tax advisor. The valuator’s role begins once the relevant departure date and property have been identified.
A valuation prepared for departure tax is therefore different from a sale valuation. It measures fair market value at the departure date, under notional transaction assumptions, rather than the price a specific strategic buyer might pay after a marketed process.
Not every asset is caught
CRA’s current guidance says the deemed disposition applies to most property, with important exceptions. These include Canadian real property, certain Canadian business property connected to a permanent establishment, and specified registered plans and other excluded rights or interests. There is also a limited exception for some property owned when a short-term resident last became resident in Canada, or inherited afterward.
Private-company shares are commonly within the rule, but the analysis depends on the actual shares, the company’s assets and the shareholder’s circumstances. A corporation can also have its own emigration consequences if the corporation, rather than the shareholder, ceases to be resident. That is a separate analysis and should not be collapsed into the individual shareholder calculation.
The practical lesson is to inventory the ownership structure early. Identify direct shares, holding companies, trusts, partnerships, shareholder loans, stock options and foreign entities. An organization chart that was adequate for banking may not be adequate for tax emigration planning.
The valuation date is a hard boundary
Fair market value is measured at the time specified by the tax rule, not when the report is eventually prepared. The valuator considers information known or knowable at that date. A major contract signed three weeks later may support the value if negotiations were already advanced and market participants would have known about them. A completely unexpected event six months later generally should not be backfilled into the conclusion.
This boundary becomes difficult when the company grows quickly. Suppose the shareholder leaves Canada on June 30 and the business closes a major financing in September. The financing may be relevant evidence, but it is not automatically the June value. The terms, investor knowledge, intervening milestones and rights attached to the new securities all need analysis.
A contemporaneous report is more defensible than a reconstruction prepared years later. It also gives the tax advisor a reliable number for the required forms and establishes the new tax cost used in future Canadian calculations.
A worked example for private-company shares
Assume an owner holds common shares with an adjusted cost base of $600,000. At the departure date, the company has maintainable EBITDA of $900,000. A 5.0 times multiple produces enterprise value of $4.5 million. Add $300,000 of excess cash and subtract $1.4 million of debt, and the equity value is $3.4 million. If the owner holds all the common shares, the deemed capital gain is $2.8 million.
At the currently enacted 50% capital gains inclusion rate, $1.4 million would be the taxable capital gain before considering losses, exemptions or other adjustments. This is not the tax payable. The actual liability depends on the taxpayer’s full return and applicable tax rules. The example shows why a valuation difference matters: if fair market value is overstated by $400,000, taxable income is overstated by $200,000 at a 50% inclusion rate.
The enterprise value bridge also prevents a common error. A 5.0 times EBITDA multiple gives enterprise value, not the shareholder’s equity value. Debt has to be subtracted and non-operating assets considered. The same distinction appears in our guide to EBITDA multiples for Canadian businesses.
How private-company fair market value is established
The valuator normally considers income, market and asset approaches. An income approach capitalizes maintainable earnings or discounts expected cash flow. A market approach compares valuation multiples from public companies or transactions, with adjustments for size, growth, margins, customer concentration and risk. An asset approach may be more relevant for holding companies, real estate entities or businesses with weak operating returns.
The conclusion is not simply the average of three methods. The method has to fit the company. A profitable service business with limited tangible assets is normally driven by expected cash flow. An investment holding company may be driven by the fair market value of its underlying assets. Our overview of income, market and asset valuation methods explains when each approach carries weight.
Normalization also matters. Owner compensation, related-party rent, non-recurring expenses and personal costs should be adjusted to market terms. A departure-tax valuation is not an invitation to maximize or minimize value. It is an independent estimate of the price informed, prudent parties would negotiate under fair market value assumptions.
Minority interests require careful instructions
A shareholder who owns less than control may not be entitled to a simple pro rata percentage of the company’s total equity value. Voting rights, dividend rights, transfer restrictions, shareholder agreements and access to liquidity can affect what a notional buyer would pay.
Any discount must be supported by the facts of the interest being valued. A 20% voting block with veto rights is not equivalent to a 20% non-voting block. A binding sale process, put right or predictable dividend policy can reduce marketability risk. The separate article on minority and marketability discounts walks through the analysis.
Do not copy a discount from another report. The percentage is an output of the rights, risks and evidence, not an input chosen to reach a preferred tax result.
Reporting and deferral rules need current advice
CRA’s guidance for 2025 returns states that Form T1243 is used to calculate and report capital gains or losses from the deemed disposition. It also states that Form T1161 is required when the fair market value of listed property owned on departure exceeds $25,000, subject to specified exclusions. The late-filing penalty for Form T1161 is $25 per day, with a $100 minimum and $2,500 maximum.
CRA also permits an election to defer payment of tax arising from the deemed disposition until the property is actually disposed of. The election is made using Form T1244 by April 30 of the year after emigration. Current CRA guidance says security is required if the federal tax owing on the departure-tax income exceeds $16,500, or $13,777.50 for former Quebec residents, with possible additional provincial or territorial security.
These figures and forms are time-sensitive. They were checked against CRA and the Income Tax Act in August 2026, but the taxpayer’s accountant or tax lawyer should confirm the rules for the actual departure year. A valuation report supports the fair market value. It does not replace residency, filing or election advice.
Planning before departure preserves options
Start before the residency change. Confirm the ownership structure, estimate the accrued gain, identify available losses and exemptions, assess liquidity for tax or security, and decide whether any reorganization has a genuine commercial and tax purpose. Transactions completed after departure cannot retroactively change the departure-date value.
If qualified small business corporation shares may be involved, review the conditions with a tax advisor well in advance. The lifetime capital gains exemption can be important, but eligibility is technical and fact-specific. Do not assume that operating a Canadian private company makes every share eligible.
The business should also preserve the information needed for valuation: historical financial statements, current interim results, forecasts, customer and supplier concentration, debt terms, shareholder agreements, option tables and details of negotiations underway at the valuation date. This is the same evidence that strengthens a Section 85 rollover valuation.
Frequently asked questions
Does departure tax mean I have to sell my company?
No. The rule can deem a disposition for tax purposes even though you continue to own the shares. The resulting tax may be payable or deferred under the applicable election rules.
Can I use book value for the shares?
Usually not unless book value happens to approximate fair market value. Historical accounting amounts can omit goodwill, internally developed intellectual property, appreciation in real estate and the value of expected future earnings.
What if the business is sold shortly after I leave?
The later sale may be relevant evidence, but it must be reconciled to what was known at the departure date, any intervening performance, deal-specific synergies and changes in cash, debt or working capital.
Can CRA challenge the valuation?
Yes. A contemporaneous independent report with clear methods, evidence and assumptions is more defensible than a number supported only by a spreadsheet or management estimate.
Do I need a CBV report?
The required scope depends on the value, complexity and risk of challenge. A formal report is often sensible where private-company shares create a material accrued gain. Review valuation report levels and cost before selecting scope.
Next steps
KitsWest Capital provides independent private-company valuations for tax planning, ownership changes, transactions and disputes. Our business valuation team works with the client’s tax advisor to define the valuation date, property, standard of value and reporting requirements before the analysis begins.
If you own private-company shares and may cease Canadian residency, start the valuation conversation before the departure date. Contact KitsWest Capital for a confidential discussion, or use our business valuation calculator for an initial directional view before commissioning a formal report.
